Today, in a surprise move the Federal Reserve slashed interest rates by half a point as fears about the economic fallout from the coronavirus mounted.
“The coronavirus poses evolving risks to economic activity,” the Fed said in a statement. “In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate.”
Earlier in the day, the Reserve Bank of Australia announced an emergency cut, driving its interest rates to a record low.
The central bank said Tuesday that it was cutting its interest rate to 0.5% to mitigate the economic impact of the coronavirus. Philip Lowe, the bank’s governor said the epidemic had a “significant” hit on the country’s economy.
Hours after, the US President Donald Trump criticized the Fed and chairman Jerome Powell for keeping their rates high putting the US at a competitive disadvantage and called out that Fed “should ease and cut rate big.”
“So clearly, governments and banks have found a preventative measure to keep Coronavirus at bay and it involves… you guessed it. Massive injections of monetary stimulus,” said Mati Greenspan, founder of Quantum Economics in his daily newsletter.
G7 also issued a statement on Tuesday stating, “Given the potential impacts of COVID-19 on global growth, we reaffirm our commitment to use all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks.”
Stimulus Given But Bitcoin & Stock Market Still Fell
The promise of stimulus had the stock market surging yesterday. Today, the stocks in the US rallied immediately after the Fed said it would cut rates but not long after the gains faded.
The Dow Jones Industrial went as high as 26,988 only to crash to 26,126. The S&P 500 also jumped to 3,128 but soon went down to 3,030.
Powell warned the Fed policymakers “don’t think we have all the answers.” But President Trump wants more cuts.
“I don’t think (monetary policy) solves the problem … This particular one is both supply and demand, it will help but it won’t fix the problem,” said Randy Frederick, vice president of trading and derivatives for Charles Schwab.
Meanwhile, Bitcoin and the rest of the crypto market “continue to move in a conspicuous correlation with the stock markets and other risk assets,” notes Greenspan.
On the weekend, Bitcoin fell to about $8,400 level only to climb to $8,920 on Monday. Today, bitcoin price jumped to $8,865 but only to drop back below $8,700 just like stocks. At the time of writing, BTC/USD has been trading at $8,690, down 2.12%.